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Making It with Jon Davids
193 - Here's How I Built a Coffee Chain from Scratch | Gregory Zamfotis
00:46:45
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- [00:00]
John Davis
What's up, guys? JD Here. And on today's show, I'm talking to Gregory Zamphotis, founder of Gregory's Coffee, all the way back in 2007, Greg finishes university, finishes law school, and then decides to open a coffee shop. Kind of a crazy move and a crazy story, but now he is at over 50 locations. This coffee shop is growing very fast, doing a whole lot of things right. And in this conversation, we are getting into the weeds. And Greg's gonna share the good stuff, the hard times, Covid tariffs. But also he's gonna break down why coffee is actually a very good business if you know how to run it. That's coming up in just a sec. If you're a fan of this podcast, make sure to leave a rating, a review wherever you're listening. Get my best stuff to your inbox@johndavis.com and now let's talk co. So, Greg, you graduate magna cum laude from Boston University, you go to law school, you pass the bar, and then around that time, you decide to open a coffee shop. What happened?
- [01:05]
Gregory Zamphotis
It's a great question and a popular one, I'd say. I grew up in the food business. My father owned and operated Fast Casual Concepts in New York City. So I sort of grew up with an entrepreneurial father, specifically in the food space. I wound up working with him or for him during my summers, during breaks, always sort of helping out my dad. So I always had this bug in the back of my brain that maybe at some point I would do something of my own. I just wasn't sure what that was or when that would be. It wasn't until about halfway through my time at law school when I realized I was maybe not so keen on pursuing a career in law. I had this sort of itch to want to do something with my hands to create, and pitched the idea to my father to allow me to complete school but also manage one of his businesses with the mindset of thinking about this as a potential career as opposed to just helping out my father. At first, he was a little taken aback by the suggestion, but then he was like, well, this is what you want. Let's figure it out. I quickly realized that with that shift in mentality, this was something I was good at and I enjoyed. Probably had that sort of Malcolm Gladwell 10,000 hour experience of doing it my whole life. So while I was young at the time, 21, 22 years old, I was pretty experienced in managing that space and quickly picked up on it.
- [02:22]
John Davis
What kind of company was it?
- [02:23]
Gregory Zamphotis
It was A sandwich shop. So my father had a Panini press sandwich chain in the city in the 90s and early 2000s. So I was helping him manage one of those. But that was definitively my father's thing. I wanted to do something of my own. So I took this experience I had and now this kind of interest in working in this field and then sort of this passion I had developed for coffee, coffee spaces and wanted to do something elevated in the coffee space here in New York. So my father helped me find that first location, figure out how to get my first business up and running. And then 2006, we opened the first location. We were off.
- [03:00]
John Davis
If you're spending more than $50,000 a year on marketing, I've got something for you. It's a playbook I wrote called how to build a Social Media Selling Machine. You can grab it now for free@johndavis.com playbook. This is the nine step formula we use for our clients at Influicity to turn their social media channels into reliable revenue engines. Grab it right now@johndavids.com playbook. Okay, you make it sound really smooth and obviously you had experience in the market, so I'm sure you felt more comfortable than others. But it sounds ridiculous. I mean, you've got Starbucks, you've got Dunkin, you've got a whole lot of players here. I understand you want to go for a more elevated vibe, but I'm sure there's also elevated players. So like, what gap did you actually see?
- [03:44]
Gregory Zamphotis
So admittedly when I first started, you know, when you're 21, 22, you think you're unstoppable. So I was like, hey, this is just something I want to do. I think there's an opportunity. When I took a look at coffee, and especially high quality coffee in the parts of the city where my father's businesses historically operated. Midtown, financial district, sort of the busy daytime office, heavy foot traffic locations. The only options for coffee were Starbucks, Dunkin, or maybe even like a cart you might find on the street. There were players doing great things in coffee, but they were often sort of on the outskirts or on the edges of the city or on mid block, not where the majority of New Yorkers are spending their days. So I saw this opportunity to take this experience I had running fast paced, busy operations and coupling that with a high quality coffee operation to deliver a unique value proposition that just wasn't available in the, in the New York City market at the time. I mean, even today it's a crowded market, but still it's hard for many to sort of approach the way that we have, which is sort of blending quality and quantity. So serving a lot of people a really high quality product. So that was sort of the genesis of our, of our concept.
- [04:55]
John Davis
So it was, it was a location play. Like we're going to do what you might be able to get somewhere else, but we're going to make it in a convenience space right here in the middle of the city. And so you've got the quality, you got the convenience. How did that first location roll out? What was the first month? Two, three, six months like?
- [05:11]
Gregory Zamphotis
Well, definitely a lot of my time, you know, I sort of poured myself everything I had into it. So early days, customers would sort of liken that store to me because I was there 60, 70, 80 hours a week. Sort of obsessed with what we were doing. Admittedly know the quality wasn't anywhere near what we could. What we produce today. We had a business right off the bat just by being an option in coffee. Our store was clean. We had great customer service. We knew how to sort of hustle and move the line. So we had a lot of things going for us. Quality wasn't nearly where it could be. But what we saw over that first three, six months was quickly learning what was working and what wasn't. And because it was just the one store, it was myself and only a handful of people working there, we were able to make changes relatively quickly. So getting feedback, adjusting, pivoting, listening, learning, and not being too precious with anything we're doing, we want to sort of continue to refine the model. As we were sort of fixing the plane while we were. While we were trying to land it.
- [06:09]
John Davis
Yeah. Which is the classic startup. You jump off the cliff and then you build the airplane. So give me an example of something that stuck out that maybe you thought would work. And then you start running it in production and you're like, whoa, guys, we gotta change this.
- [06:22]
Gregory Zamphotis
Yeah. I mean, for us and for me particularly, efficiency and streamlining of operations. How do we get these people served relatively quickly, immediately how we thought we would work. Our workflow wasn't quite working. And to do things I wanted to only making coffee one cup at a time, steaming cups individually, all the steps involved to prepare our coffee the way that I thought we needed to. Doing that with the way we were organizing our team made it sort of impossible to meet the time standards. So getting people served in a reasonable amount of time. So switching our workflow, sort of training as to the steps needed to produce products the right Way. So in the beginning it was a lot of just sort of process. How do we actually operate as a team to be able to move a line and be able to deliver the quality at the time that I wanted to be able to do from there. I mean our menu wasn't that complex. I mean we had sort of a very simple coffee menu, limited food offering. We were buying products from third parties at the time. So ask some questions from our guests, like hey, is there something you'd like to see whether it's like a food product, something we might be missing? So it wasn't anything dramatic in those first six months. I think the real sort of turning point might have been in year two as I not only was focusing in store what was happening, but started to really visit national coffee conferences, spending more and more time in other cities, kind of understanding what some of the better operators were doing. And really it was the proliferation of the third wave of coffee which was starting to take off at that time. Things like latte art, pour overs, these are sort of things that are ubiquitous now. But in 2006 and 7 that was rare. Nobody was doing that, so especially not at Mass. So all these things were new and exciting and I couldn't wait to weave them into what we were doing. So you know, at that time I could see something on a Friday and I could have it on the menu by Monday. I would just sort of sit over the weekend, figure it out and roll it out. So we were sort of almost just in time with the decision making and I had sort of this never ending thirst for how we can improve or make things better. And it just happened to be at the benefit of so many changes happening at the time I could weave into the program.
- [08:34]
John Davis
Yeah, you just like avalanche of wisdom there. So like the thing that I pick out of there, obviously you've got to figure out your, the operations, get the workflow down, figure out how you keep the whole team moving as one to deliver the product, which is a cup of coffee, but then also the speed of idea generation to production, which is something that a Starbucks might have an idea in April and they launch it the following June. But you can have an idea on a Friday at 2 o' clock and it's in market by Friday at 6. And so I totally get that. And you took advantage of that. What about the unit economics? Did you understand how to sell a cup of coffee profitably on day one or was there a period where you were just burning cash?
- [09:17]
Gregory Zamphotis
No, we definitely weren't scrutinizing profitability per cup or any of those things. Early on, I think to begin with, we were controlling labor because I was basically running the store myself and spending the majority of my time there. And in the slower periods, we didn't need very many people on because it just wasn't busy enough. So I could sort of manage things, things on my own. And we were keeping things relatively tight. So it wasn't really like a cash burn per se. It was just, how are we going to continue to drive traffic? How are we going to win more customers over? So it was a little bit over the Wild west at that time. We were across from Credit Suisse headquarters, and at the time, you could talk to somebody at Credit Suisse with an offer and they could blast it out to their whole building and you'd get 1,000 employees walking over for a dollar off of a smoothie. Eventually things changed, and no longer businesses couldn't promote other businesses like that. They had sort of rules in place. So back then you could do a lot of grassroots guerrilla marketing and sort of really drive behavior. So for me, it was like learning what could I do to sort of influence traffic? What could we do on the program to refine things? And I really believed that over time we'd be able to justify the rent and all the other things that we were paying based on the foot traffic that we'd be able to generate and serve in a reasonable amount of time.
- [10:38]
John Davis
You just hit on my next question there. I would imagine rent's going to kill you here. You've got to sell a lot of coffee to pay rent at a store across the street from Credit Suisse in Manhattan. So were you. I mean, do you know what. Do you remember what the rent was on day one? And did you have it in your head, okay, I got to sell this many cups today to pay my rent?
- [10:55]
Gregory Zamphotis
Again, this was like the ignorance is bliss theory, I guess, is like red pill or blue pill. Like, I just didn't. I was just determined to do whatever we needed to do to generate. Generate business and cash flow. And I think we weren't bogged down in P Ls and things like that. Like today, that's a big part of what we do, is sort of drilling down into the details to sort of optimize and drive every cent of profitability that we can. When we were first starting up, it was less about focusing on the P and L and more on the brand, the package sort of culture, the things that we were trying to create and drive. Because I think, you know, and I Don't know if this is for everybody, but if we were so focused on every element of the economics from day one, we maybe would have not made some decisions or been more conservative with some of the choices that we would have made and maybe not went out and bought like a new pour over brewer to try something on the fly that wound up working and generating positive communication and traffic. So, you know, some element of risk taking a little bit of faith and trust in yourself, but just sort of understanding what we were trying to accomplish and understanding that it wasn't going to happen on day one or day 30 or day 90. It was going to take a bit of time to understand what would work and what would resonate. But you had to take some shots, right? Like you're going to miss 100% of the shots you don't take. And fortunately or unfortunately I was willing to take a lot of shots and ask a lot of questions and kind of in real time I wasn't going to have to ask a barista, hey, did this sell? I'm like, I was there, I was the one selling it. So I could say like, hey, I put out this new product, did I actually make them or did I not? I can physically see what's working, what's not. And I still think about it today, like how, how many ideas I can generate or things that get me excited. But we're not necessarily on the year timeline like you mentioned, like some of the bigger players where. But we are actively trying to monitor things that are new, exciting and not having to be so delayed. Maybe not Friday Noon to Friday 6:00pm but you know, much more tighter timeline on trying to turn around great ideas.
- [12:55]
John Davis
There's definitely a balance between in the early days, you know, lots of idea generation, focusing on the brand, focusing on the big wins. I think where you run into trouble, and you obviously didn't, is you take those swings and the time passes and all of a sudden you run out of cash. I mean businesses can have plenty of optionality right up until the day that they have no money left in their bank account. And so you really do have to be taking a lot of swings early on to figure things out, to learn to R and D, to pivot. But, but yeah, I mean the risk is that you're going to, you're going to take too long and you're, you're not going to be able to make it stick. Were you. So was there ever a point I want to get to location two and three and five in a second, but was there ever A point in location one where it almost didn't work.
- [13:41]
Gregory Zamphotis
I think during the first year where there were, you know, blips, you'd see like, all of a sudden you'd start pushing and starting to see some, some traffic generated and then you'd plateau for a little bit. And then you're, you know, you are wondering like, hey, like, when do we think we are going to start reaching a level where we're busy enough, we're seeing sustained lines during the peak. We're seeing cash, you know, starting to generate cash at the end of the month instead of breaking even or having to cover it with, you know, maybe some of the other businesses that we were running at the time, or my father was running at the time just to kind of help us in the beginning. So, you know, it takes time. And it wasn't until, you know, year two where we're starting to see the bigger impacts with some of the chances or the things that risks that I took that started to pay off. And then people started to see, well, if they're doing things like latte art, that's distinct from anything else available over here. So it's not just a subjective, like, I think I might like this coffee better than I like this coffee. It's like, no, Gregory's is doing things that were distinct, innovative, forward thinking and certainly not available anywhere else. And once sort of that sentiment went out around the community, it was, it was clear that people would start walking past other coffee shops to come to us. And that was sort of the tipping point where people started to really start to select us. And not just out of convenience because it was on our block or you just happened to walk by it. But you start changing decisions, people are breaking habits or going out of their way to find you. And that's sort of the key is how do you become that, that destination as well as being conveniently located where you're generating just natural foot traffic.
- [15:17]
John Davis
There are so many stories of specifically, this is like a product of Manhattan. These businesses. I think SNL just satired it where you have lines around the block, people wait in line for three hours. You know, it could be the bagel shop or the ice cream shop. Were you ever in that trend window where people were sort of lining up to try it because it was new and novel, or was it always sort of more organic for you?
- [15:39]
Gregory Zamphotis
I mean, that's. There have been bits and pieces. We'll open a new store and they'll be super, super excited to come try us out. I think our business is Less of like a viral sort of thing where you'll see an individual product that people get super excited about and they're willing to wait an hour in line for something that, you know, we might be selling. We've certainly had long lines. We've certainly had lines out our door or twisted around the block for. For short periods of time. But it's a bit different than I think you'll see from some of the other types of businesses out there. I think, if anything, coffee shops like ours are focusing on throughput and really paying attention to how can I make sure we move the line. And if I have somebody who's waiting in line for an hour, I got a lot of problems. Right. You have to have so many, because, I mean, if we're focusing on. Call it like 5 minutes or less, 4 minutes or less, 5 minutes or less, to have that many people waiting for that long would be probably a problem for us.
- [16:36]
John Davis
Yeah, I don't know if I'd wait more than. I love the coffee, but I'm not sure I'd wait more than 10, 15 minutes for it. So what I love to do on this show is I love to sort of do these business breakdowns and figure out what is the anatomy of this business. And I'm sure that you figured that out because you got to step two, three, and five. I think I actually saw a clip of you on another podcast where you were breaking down the unit economics of a cup of coffee. And how many cups do you have to sell to pay rent? Can you just sort of give us the archetype, which you figured out at some point, of like, here's what I need to do to make this coffee shop work. Maybe three or four bullets.
- [17:10]
Gregory Zamphotis
Yeah, I think, you know, you work, you sell backwards from your fixed costs. Right. So things like utilities, rent, insurance, the other bills that are there month over month, whether you're. Whether you sell a lot of coffee or a little bit of coffee, and then, you know, you break that down by day. So if you. If our rent is $10,000 a day, call it other fixed costs, or add $5,000 a day, so. Or $5,000 a month. So if we're at 15,000 over 30 days, you call. Your overhead cost is around $500 a day. And then you start adding on things like labor, your cost of goods sold, other miscellaneous things like credit card processing and delivery charges or whatever else might be chipping away at what flows through to the bottom line. So if we're saying, like, that floor is the $500. So, and then every dollar over that, we need to make sure we're generating enough flow through after our cost of goods and our labor to start driving profitability in the business. So at that time I may have had the math calculated all out, but I could try and do something relatively quickly here. So if we're at, let me keep it pretty easy, 25% COGS and 25% labor, so called 50 cents on every dollar is already being spoken for by the cost of producing that product. And then we've got $500 a day of overhead costs. So if I do $1,000 in sales a day, 50% of that is spoken for from our costs. The other 50% is covering the overhead. So got to make at least $1,000 a day, just roughly to cover the overhead cost. So $1,000 a day, 30 days, you're talking about $30,000 a month. So as you start going higher and higher above that, $0.50 out of every $40 flows through and gets and clears your overhead costs. So if you're doing $2,000 a day in sales, then you're left with $500 a day in profit. So if a cup of coffee back then was $1.85 when we opened, right. So we weren't really selling very many other products. I mean there was coffee, obviously, coffee, lattes, cappuccinos, let's say the blended average of things we were selling was around $5 per customer. So to get to $1,000, you're talking about 200 customers. To start making a little bit of money, you're talking about 3, 400 customers a day at that spend rate to start generating a little bit of profit for coffee. It's compressed during some pretty specific time periods. People are coming in from 7 to 10am Then they'll probably come in again between 2 and 4 for the, for more of like that second hit or like the lattes, cappuccinos, things like that. So you're really focusing on like maybe five hours during the day, seven to ten in the morning, and then maybe two to four in the afternoon where you're generating the most amount of natural foot traffic for a coffee shop. So how can you make sure you're turning over guests as quickly as possible to be able to justify hitting those numbers? And that's a $10,000 a month rent. Obviously, like stores are varied and today many of our stores are more expensive than that.
- [20:04]
John Davis
So I love this. So you've got two constraints. I'll just pull these out. So the two constraints you just mentioned are if each customer is spending $5, that's what the customer is going to spend. And you've got these windows of time where I've only got, let's say five, four or five hours a day to make that amount of money. What lever do you pull so you can say, okay, well maybe I can get customers to spend more money. Maybe I can increase my prices by a few pennies or I can get them to spend on a cookie or a brownie or something. Or maybe I can get more people in the door, higher volume by maybe processing faster or getting that extra hour. Where did you go or where do you think about going now to kind of increase that, that total top line number?
- [20:48]
Gregory Zamphotis
Yeah, I mean the two cores here are basket and traffic. Right. You want to drive either one of those. Increasing is going to drive sales. If you drive them both, that's, that's obviously a great, a great outcome that you can have. I think early on I wasn't focused on raising prices. I think we were focused on product and I think a lot on food. So a big thing that probably didn't come till year three was when we started baking our own and doing a scratch baked program. So that's where we started to see a bigger basket lift because we went from purchasing products from others. So it was a day, maybe it was baked a day or a day and a half prior to starting baking our own. And things people can tell it was made fresh and that we were, you know, making unique products not to sort of the same thing you could find everywhere else. But early on it was just about traffic. Like how can I generate traffic? But then traffic is only as good as you can turn it over. If I could generate a long line, but like you said, they're waiting an hour in line. That person's probably not going to come back tomorrow if they know they can go across the street to a competitor and get in and out in five minutes or seven minutes even. So early on it was like, how can I drive traffic and how can I make sure they're served efficiently? And then later it was coupling that with how can I add products that make sense within our space that people want and then can generate more excitement around them to sort of increase how much people are spending with us. So our biggest miss early on was people would come for the coffee and then they'd go somewhere else to go find something to eat. So they liked our coffee enough, they're willing to make two stops instead of getting their coffee and food from somewhere else. But we just didn't have the food offering that people were excited enough about was until years two and three when we started pushing further into a better baked program that we started to see a much bigger attached there. So people weren't just buying one product, they were buying two or three products and you start seeing the basket go up.
- [22:37]
John Davis
How do you think about pricing? There's a coffee shop near my house and I notice every time Starbucks raises their pricing from $2.35 to $2.47, this coffee shop across the street raises their price and it's always like a nickel or a dime higher than Starbucks. And so I wonder, in your case, you're talking about being more premium or having maybe a better taste in a cup of coffee. How do you think about pricing relative to every other cup of coffee I could buy?
- [23:04]
Gregory Zamphotis
Certainly benchmarking is something that's important to do because you want to make sure relative to the market that you're sitting in the right value space. Right. So that's part of it. The other part is obviously just managing through costs and the changes there obviously more recently this is an acute issue we're dealing with with coffee prices being at an all time high tariffs and other things that are driving ingredient costs into uncharted territory, let's say, or even a few years ago when there was huge spikes in inflation on specific items, eggs or milk or other things that were causing, causing some issues there. So you know, we monitor a number of factors. A lot of it is just sort of like year over year, cost of doing business goes up. You know, most people may or may not be aware, but most rent contracts include yearly escalators. So your rent isn't, you know, you know, you might think of your home if you're renting an apartment and you talk to your landlord, maybe some years it goes up, some years it doesn't. But most commercial leases have escalators either every year, like a 3% every year or 6% every other year, things like this. So your rent goes up, like to take care your people and either like, you know, minimum wage goes up or you're just increasing the pay and then ingredient costs. Right. So those are also can be silent challenges where, you know, milk was $4 a gallon, now it's $5 a gallon or $6 a gallon. So you measure the inputs and all the things that go into the products that we sell, the other costs associated with doing business and then we also benchmark. Right. Because we don't want to be out of whack where if we're positioning ourselves as, you know, a premium operator selling great products, so, you know, we should be in line with where others are placing themselves in the market. You know, obviously, Starbucks is the biggest one because they're the only competitor that are near every single one of our locations. I have some locations that might have one or two coffee shops similar at location one versus location two, but the only one that I could say is consistently near every single store is Starbucks. So they're always a good one to kind of measure as a measuring stick as to what they're charging. Problem with them is they have this probably the most complex matrix ever, where they'll charge $4 for a latte across the street from my Gregory's here, and then I'll go two blocks away, and the same latte is $4.75. They have a dynamic pricing model based on tourists or locals or schools or ports of entry. I see different price of Starbucks depending on which location you go to. But that being said, it is still a useful tool to do, and we use it as a barometer for sure.
- [25:33]
John Davis
How many locations do you have now?
- [25:35]
Gregory Zamphotis
56.
- [25:36]
John Davis
56. That's across New York, New Jersey, Washington, and a few other states also, right?
- [25:41]
Gregory Zamphotis
Yeah. Yeah. Tennessee, Illinois, Arizona.
- [25:46]
John Davis
So what was it like going from location one to two, and what were the breaking points? I mean, was location 10 any harder, or was location 30 any harder?
- [25:55]
Gregory Zamphotis
So location two, I think, mentally, was the biggest challenge because, again, when we had one location, I was there nonstop. I was able to sort of not only manage the business, but lead from the front and really ensure quality, consistency, and all these things, just because I was pretty meticulous at that time with how I wanted things to be run. And the minute you open a second location, it's like, well, you know, classic. You can't be at two places at one time. So you need to start building more trust and faith with the team to be able to execute on your vision even if you're not there. So I think mentally that was the biggest hurdle for me, was how can I feel confident enough to sort of exit the store for long periods of time, even during peak, and trust that the level of experience is going to be similar, if not or hopefully better than even if I was there. But I think we were sort of fortunate in that our second location was a midtown location that was very dense and limited competition at the time. So we opened on a Friday afternoon in July of 2009 on 44th street and 6th Avenue, and we opened a little bit Late because all of the food prep that we were doing at our first location didn't happen on time. So we couldn't open at 6am like we wanted. We had opened a little bit later in the morning because our food didn't arrive on time. So, you know, a little frustrating. But I remember we opened late, so we missed the whole morning rush. So the Friday afternoon first day was a little bit quiet, so we weren't expecting very much. So Saturday was sort of like the first full day of business. But that block has so many hotels on it. It's. It's a really, like, really cool block. Some, some hotels like the Algonquin, a famous one, Sofitel, Harvard Club. There's like five or six hotels on this block. So the interesting thing with the tourist is when they, they come to the city and they exit a hotel, many of them, they're not sure if this place has been here for 10 years, two days or, or five months. Doesn't. They don't know. It's just that there's a coffee shop on our block. So I remember opened that first Saturday and that was a day where it was just myself and my sister working and my sister was just there to help. She didn't know how to do anything other than run the register. So I basically, we had a line out the door for like four hours and the two of us were running the business and it was, it was a hit right from the start, that location. So we were fortunate to choose a strong location there for location number two. And it immediately hit the ground running and resonated with the locals, people working there as well as all the tourists. And the hotels were excited to have an option on their block finally. So that one did quite well and actually wound up being one of the best locations in the fleet for like 10 years. For the first 10 years of its business.
- [28:31]
John Davis
Marketing executives, business owners. If you are running a company and looking for a fresh perspective on how to grow that company, take a look at Influicity. That's my marketing agency where we work with brands across influencer marketing, podcasts, social media, AI content, paid ads, and so much more. But don't take my word for it. Go to Influicity. Check out our case studies from all the amazing clients we've worked with over the last decade. That's inf l u I c I t y influicity.com and I'll see you there. Do the locations get better and better? I mean, going from one to two and two to three is one thing. But once you're at 40, 50 plus locations, are you so dialed in at that point that they just get more profitable every single time?
- [29:18]
Gregory Zamphotis
Well, it depends, because this year was a lot of new markets. So you see, there are challenges opening a new market where if I open a new store in New York City, the brand is already very familiar with folks. I don't have to educate them as to who we are and what we stand for, where, when we open a new location in Tennessee, whether it's a good location or a great location, people still need to feel comfortable with who you are, what you stand for, why they should choose you, or break a habit with going to another location. So new markets are always. You see a ramp of. We call it anywhere from like 12 to 24 months, where you start to see, like, the continuity or people start to feel comfortable with your business and really feel like you've immersed yourself in part of that community. So early on, each new store was interesting to see. Like, you know, people still didn't know Gregory's when we only had two locations, a big city. But the more locations that we opened and we did retroactively, thinking the first five locations were all sort of clustered in the middle of the city, all between 23rd and 44th street, between 7th and 6th Avenue. So you'd find people would be walking through certain parts of the city, and they might pass two or three Gregory's just because that's just how the locations worked out. So it had this sort of outsized presence depending on where you were walking. If you walked downtown or on the west side, you'd never see a Gregory's. Right? But if you were in midtown in certain cohorts, like, oh, wow, this chain is. Is. Is huge. They got. I just walked by three of them in ten minutes. So that wound up having an amplifying effect. And I think, you know, as you grow, the brand velocity kind of picks up and people start to feel more comfortable with you as they feel stronger presence and more volume in the market.
- [30:57]
John Davis
You know, it's funny you say that. I just had a conversation with the founder of Untuck it with Chris, and he was saying that opening physical stores for an e commerce business, when you open physical stores, you create this halo effect because people all of a sudden just think you're everywhere because maybe they saw an ad for you on Instagram and they go to their mall, they're like, oh, there's the store. Wow, these guys must be crushing it. But no, it's actually just those two things, but it really is about creating a bubble around your core buyer so that to them it feels like you're everywhere. And it's kind of funny you say that if I take a certain route when I walk to work every day and I pass three Gregory's. I just think you guys are everywhere. But it's just that you've done your real estate strategy smart. So let's talk about probably what I'd imagine was a big change for you, and that's Covid pre and post pandemic. What was the experience like and how has the business changed?
- [31:47]
Gregory Zamphotis
So, yeah, I think Covid was probably uniquely designed to destroy Gregory's. I mean we were. Our core business was, like I mentioned early on, serving the daytime office population in New York and D.C. at the time. And those were two of the hardest hit markets. And certainly daytime office population was the one that retracted for years where no one was going to the office. And then for long, you know, for years it was looking at return to office statistics and how many days a week are people coming into the office and these sorts of things. Huge buildings, you know, 10, 20, 40, 50 story buildings that used to be pretty much fully occupied Monday through Friday were now empty Mondays and Fridays and maybe at 30, 40% occupancy Tuesday through Thursday. So it was a huge shift for a long time in sort of our core business. So we, we had to make pivots and adjustments to our approach. We had, you know, thankfully prior to Covid, we had made the decision to penetrate into some suburban markets. So a lot of those stores started to open just as Covid was, was really the early phases of COVID So thankfully we had a little bit of a balancing out where while the city stores had really fallen down to a low level based on just what was happening in the cities at that time, the suburban stores were, the newer ones were doing quite well where there was just more people home at that time. So that was one function and one decision we had made historically that helped us during COVID in the early days. But then many things like our pivots on our menu further developing like a hot food portion of our menu leaning into delivery. Other things that we had done pre Covid delivery was less than 1% of our business in 2019. It grew to like 30% of our business by early 2021 when people didn't want to leave their house and they were much more comfortable ordering coffee and coffee related products on a delivery platform. So now it's settled into more like 9 or 10% but again, that was almost nothing. Pre Covid, our menu mix has changed dramatically. So while we probably had one or two hot breakfast sandwiches, like we were just testing those out pre Covid again making things ourselves, doing things a little differently. Now we have about six or seven offerings available. It's grown to a much more material part of our menu mix. Continue to lean into the menu development, trying new things.
- [34:07]
John Davis
Did it make the business stronger ultimately or do you think like, would you have preferred in retrospect, it never happened, obviously the pain of it. But did it make the business better in a certain way?
- [34:15]
Gregory Zamphotis
I think it made us more resilient. I think it made us a bit tighter in a lot of areas where we need it to be a lot of the product and menu management. So being much more meticulous about what we sell, the ingredients we use, prices we're paying, and really drilling down on waste and other things that maybe weren't such a hyper focus prior, but really starting to tighten things up as there's less room for error. So I do think it made us a stronger, more resilient and more focused in many ways. Business certainly don't wish it had happened and I don't wish it to happen again. But I think it did cause certain pivots. It did change the trajectory of the business. And you know, I think no regrets. It is what it is. We learned a lot, we developed, we changed and I think we've adapted as best we can given the circumstances. And I mean, we were at 31 locations in February of 2020 and we're now at 56. So despite all the challenges and the headwinds that we have grown as a company and trying to take all the lessons learned and all the pivots and adjustments we've made and sort of amplified them to sort of take the business that we've done and try to make it even stronger and more able to handle things like hopefully not another Covid, but other challenges as we move forward.
- [35:34]
John Davis
So we're recording this early May 2025 and I want to ask about tariffs because you brought them up earlier. My understanding is that retailers are feeling them right now. People in businesses are feeling them, but they really haven't hit the consumer yet, although they probably will. How are you seeing tariffs right now?
- [35:52]
Gregory Zamphotis
I mean, the biggest one, which is a challenge for us is our coffee prices. So coffee, as you may know, is not domestically grown, certainly not in the amounts needed to supply the coffee industry. So there's like this 130 year policy. I think the McKinley act something like this where there was no tariffs to be added on crops or commodities that are not grown domestically. Right. Otherwise it just in effect is a tax because you can't purchase it domestically. You have to purchase something from a grown. From a foreign nation. So this has been something we've been, you know, a lot in the coffee industry have sort of been pleading and asking for exemptions to this because there's no option for us. It's not like return to US Manufacturing. Right. Like, don't build abroad, build here. Just not an option for. For something like coffee. So thankfully, many of our other items, like our paper products, we had spent the last few years moving everything domestically. So that was a project we had started.
- [36:50]
John Davis
And you started that before tariffs?
- [36:52]
Gregory Zamphotis
Yeah, yeah.
- [36:53]
John Davis
Wow, that's lucky and a half ago.
- [36:55]
Gregory Zamphotis
Yeah. Honestly, like, timing wise, like, our paper cups completed the move domestically probably in February. So it was like right before all this stuff kicked off. I mean, just. Yeah, talk about timing. That would have been pretty problematic. Those that are sort of stuck with that as an option are in a tough spot. So for us, it's mainly like monitoring what's happening, trying to understand, because as you can probably tell recently in the news, it was like, one day it's this level, the next day it's a different level. It's paused, it's not paused. Deals are being struck. It's really hard to follow or make a plan without a definitive answer as to what's going to happen. So in the short term, we're just sort of monitoring what's happening and making decisions as best we can and trying to protect the customer. So we don't want to make, you know, sort of rash or permanent decisions that will negatively impact the customer if it's not going to be a permanent change to our cost structure. But yeah, it's been a tough deal to balance and we're trying to work through it.
- [37:56]
John Davis
I've asked this question to a lot of restaurant entrepreneurs and restaurant moguls, and I'm curious to ask you because you. You see so many different businesses in the space. You mentioned sandwich shops earlier. Where would you rank coffee as a restaurant business? And I use the term restaurant in quotes because I don't even really consider it a restaurant. I mean, you're selling something that's almost a finished product versus having to make, you know, like spaghetti sauce from scratch. But where would you rank it in terms of like a sandwich shop versus.
- [38:26]
Gregory Zamphotis
Coffee shop as far as complexity?
- [38:28]
John Davis
Well, as far as making it a good business, like, I'll Give you an example. So Greg Majewski, who runs, used to run Jimmy John's and he runs a bunch of big restaurants now, he said the absolute most profitable thing you can have in the food industry is ice cream. 92% profit margins and it's just wonderful, so wonderful, simple business. How would you rank coffee on that chain? Is it pretty much like up like ice cream?
- [38:49]
Gregory Zamphotis
I don't think it's quite at 92%. Ours is probably more in like the 15 to 20% range based on the level of, of quality of the coffee we purchase. Again, we purchase it, we roast it ourselves and then you add in cup sleeve lid, sugar stirrer, other things that people add. So that's just for the drip coffee. So you know, I think and that was part of the same discussion as we had about day one where how do you drive basket and traffic. And it's coffee on its own is great. It's just a low priced item. Right. So if we were only selling drip coffee, $2, $3, it'd be really hard. You'd have to generate a lot of steps to be able to get to the top line justifying certain rents. And that was again part of the issue. A lot of other coffee shops challenge they faced was they were really hyper focused on coffee and coffee alone. And if you don't have any supplementary products, there's only so much you can charge for a cup of coffee. And if you're doing it at the high level that many of them were, it takes a lot of handcrafted elements to it which take time. So you can't do a high volume, you can't charge a lot of money and you can't sell other products. So you're really limited to how much revenue you can generate. So for us it's how do you create a wholesome menu that includes other things. Obviously having coffee as the anchor is super important and as a portion of the basket it might have an attractive cost of goods relative to some of the other product we sell. But blended it comes out to a nice level. Some of the sandwiches that we sell are north of 30% COGS and then coffee could be quite a bit lower. But yeah, no, I don't think anything touches ice cream, especially if it's like that the machine and it's like powder based and adding some milk, it's those.
- [40:28]
John Davis
Cash cows that's tough. And then in your family's portfolio is, is the, is Gregory's Coffee sort of at the top of the chain now or are you still kind of Leaning into the other. Other concepts.
- [40:40]
Gregory Zamphotis
Yeah, I mean I've. Since we've been, since we started this, I've only really been focused on Gregory's. You know, my father, he still has some legacy businesses that he's had for a long time, even predating Gregory. So he, my father is still involved in those, but for me been all Gregory's and that's all my focus.
- [40:58]
John Davis
And where do you see it going? So 56 locations. Is this like an IPO one day? Is it a private equity play? Is it just. I'm going to run it for the next 30 years?
- [41:07]
Gregory Zamphotis
Well, the last year was sort of the biggest one, I think in our company history. We opened 20 stores in the last 12 months. So that might not be a lot for some of the bigger companies. But you know, when we were, we started at 36 and went to 56, it was like, you know, nearly a 50%, 55% increase in our store count in one year. So given where we started to where we are today, it was a lot. So I think this year is focusing on all that we've just done and trying to optimize and make, make the most out of all this hard work that we've just put in. And then I think from there the sky's the limit. We see so many great markets that we've just penetrated that make a lot of sense for us to fill in. So having one store in Jacksonville, Florida, that does phenomenal. I mean, Jacksonville is the 10th largest city by population in the country. So I think we could certainly justify it. Having more than one location in Jacksonville, that's just one. We're in San Francisco market, we're in Orange County, California. These are some amazing markets where certainly justify having more than one Gregory's. So how can we infill these markets, do more drive throughs the things that we've done really well here on the east coast. So there's a lot of opportunity for us to fill in these markets and grow. And we think we can grow almost exponentially once we're settled in and ready to rock with a growth plan that I think aligns with what we are and what we stand for.
- [42:27]
John Davis
I mean, is it still a family business? Do you see yourself needing a ton of capital to get this done or you can really grow on cash flow?
- [42:34]
Gregory Zamphotis
Well, depends on my ambitions. Right. I think unfortunately for a retail business like ours, it is capital intensive to open new locations. So depending on how ambitious we get or the growth strategy we lay out will determine how we'll pay for it, but we're not a franchise at the moment. A lot of the fast growing companies out there today are franchise operations. There's just a different economic model for us as company owned. There's definitely a different mindset when it comes to growth, mainly because of the capital constraints to open a new store. We're thinking about all these things today and we're planning on a bigger push in 2026 with taking the data and the understandings of what's worked in these new markets and which ones we want to push more chips into. But we feel really good about the early results and we feel like we're just sort of at the beginning of this, a ton of white space for us in a lot of these markets. So we're excited about where we can to take this.
- [43:30]
John Davis
It's really inspiring that after all this time, like I started the conversation off by saying that it sounds crazy to compete against these established players in the market, especially in New York City, but after all this time, 20, almost 20 years, not only are you energized and you're here, but you've also been through Covid and the tariffs and you're still like, we're at the start, we're going to keep going. Do you ever have down moments or you're this kind of guy, you're just always looking, looking bright?
- [43:58]
Gregory Zamphotis
I think I am sort of an eternal optimist with the business, mainly because I'm pretty confident in what we're doing and certainly in myself. Can't say there haven't been challenges. Can't say there haven't been mistakes or hiccups. There certainly are. And I think as I sort of think about my leadership style and just sort of my mindset, a lot of it is, you know, there's no, you know, I'm not the only one who says there's no losses, only lessons. Right. So anything that didn't work, what can we do to fix that? What can we do to turn that into an opportunity for us to improve? How can we take things we're doing really well and amplifying those things? I personally just can't help myself. I love being behind the counter, making drinks, just chopping it up with our teams. And there's a side benefit to that, is that I don't ever really want to be too separated or divorced from what's happening on the floor. And I'm not saying I'm spending hours and hours a week, but I mean, there are definitely bits and chunks of time where I'm there. It's dual purpose. Obviously, half the time I'm going to just to make myself a coffee behind the counter and then I wind up staying for 20 minutes to make some drinks for folks just because I love to do it. But I get to see what's involved, the process of making the drinks, the interactions with the guests, what the opportunities are. So that way I can always ensure, hey, I might not have 30 ideas, push it on a store. And it's unreasonable because I'm like, how are we ever going to get all this stuff done? It's too complicated. So always being grounded. So that way, whatever we're asking or ideas that I come with or thoughts in my mind are also going to be executed at a high level. The team is going to rally behind them and get behind them. You know, I started this, you know, 19 years ago in part because I didn't want to be behind a desk. I wanted to be on my feet creating things and being, interacting with people. So holding on to that and not. And not staying and making sure I'm staying close to the business always is important for me.
- [45:39]
John Davis
When you're making drinks behind the counter, do people ever look at you and they say, oh, you're the guy in the sign.
- [45:45]
Gregory Zamphotis
Every day, everything. So this is on the second floor of our. We have our coffee shop on the first floor and our office is on the second floor. So I'm always popping up and down just to make myself a coffee. So I'll have that conversation a half dozen times a day. And if I do wind up, you know, sitting back there for 15 minutes helping to make a drink, yeah, it's definitely a. It'll happen quite frequently that I've also just known for years. Just kind of. This is the store I'm in is our fifth location. It's been open since 2012. So many of our customers have been coming for 10, 12, 13 years. So always have good conversations with those longtime, loyal customers.
- [46:22]
John Davis
That's awesome. Well, Greg, I'm a fan. It's a great cup of coffee. Thanks so much for sharing the story today.
- [46:27]
Gregory Zamphotis
Thank you.
- [46:28]
John Davis
Thanks for listening. Hope you enjoyed this episode. If you did leave a rating or review on Apple or Spotify, wherever you listen to podcasts, it helps other people find the show and it lets us know that we're doing something right. We'll talk to you guys next time.